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September 15, 2016

Dealing with Unmanageable Personal Debt… What are your Options?


In a society where debt levels continue to increase, individuals and companies are frequently exposed to situations where they encounter unmanageable debt.

Given our profession, we often meet people with unmanageable debts – company debts, taxation debts, credit card debts, personal loans, personal guarantees, and director penalty notices from the ATO, to name some.

In our experience, unfortunately most people we meet do not understand their options.

We are in a unique position to help people in such situations, by:

  • Explaining the options available when faced with debt;
  • Advising how each option will affect them; and
  • Providing a strategy to assist and resolve their financial difficulties.

Over the coming editions, we will explain the options and some of the main aspects and implications.

So, what are the options available to individuals facing unmanageable debt?

1.   Repay the debt

2.   Reach a settlement or compromise with creditors

a)  A formal proposal / settlement (Part IX Debt Agreement or Part X Personal Insolvency Agreement pursuant to the Bankruptcy Act)

b)  An informal proposal / settlement (privately negotiated with creditors)

3.  Do nothing, which is likely to result in a creditor

a)  Taking legal action to recover the debt owed – this can result in a Court bankruptcy

b)  Garnisheeing income

c)  Taking action to sell property (e.g. a mortgagee / financier for secured debts, a Court Bailiff / Sheriff for unsecured debts)

4.    Voluntary bankruptcy

We assist people in understanding these options, which invariably relieves stress and anguish, not only for people in financial difficulty, but also their family members.

Whilst the options appear simple, there are many aspects which ought to be explained by an experienced professional. At SV Partners we are able to explain these options, any restrictions or limitations applicable and how each option may impact your client so they can make an informed decision.

We start in this edition by discussing Option 1 – repaying debts.

Whilst this may seem obvious, it can be overlooked when people do not have readily available assets to repay their debts.

There are a number of ways this may be achieved, for example:

  • Refinancing existing debts;
  • Borrowing money on more suitable terms;
  • Selling assets to pay debts;
  • Obtaining financial assistance from a third party (e.g. family or friends); or
  • Repaying the debt over a period of time (in a mutually acceptable manner).

Repaying debts in full may be more appealing in circumstances where the overall debt owed is not too substantial, if there are assets that may be sufficient to pay the debts owed or if another option is not appropriate (e.g. a compromise cannot be reached, employment may be adversely impacted by bankruptcy, etc.)

We are sometimes faced with individuals that become bankrupt (instigated by a creditor) in situations where they have sufficient assets (whether it be cash in banks, shares, equity in their property, etc.) to repay their debts. In these instances, the overall costs payable increases due to legal fees, interest payable and the fees and costs of the bankruptcy. Knowing the options and effects can alleviate such occurrences, thus reducing costs and stress!

In our next edition, we discuss Option 2 – Settlements / Compromising Debts.

The SV Partners team can assist your clients with dealing with unmanageable debt. Please call 1800 246 801 or contact one of our insolvency experts.

Article written by Jason Cronan, Director, Queensland

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